AMD to Cut 2,300 Jobs, Close 2 Plants

Advanced Micro Devices Inc., the chief rival of Intel Corp. in the market for microprocessors, said Tuesday that it will cut 2,300 jobs, or about 15% of its work force, and shut down two chip-making plants to cut costs.

Sunnyvale, Calif.-based AMD said it will close its two oldest chip-making plants, with 1,000 workers, in Austin, Texas. The remainder of the cuts will come from plants in Malaysia.

“These are older [plants] and they’re not strategic,” said Prudential Securities analyst Hans Mosesmann.

Chip makers, personal computer companies and a slew of other high-tech companies have cut tens of thousands of jobs this year as the high-tech industry headed into a recession and the economy slowed.

As a result of the moves, AMD said it will take a third-quarter charge of $80 million to $110 million, adding that it expects to save $125 million annually.

AMD, along with Intel and the entire semiconductor industry, has been battling slumping demand and slow PC sales. Some market researchers see global chip sales declining as much as 34% as demand lags.

The announcement comes after AMD said Aug. 29 that it probably will post an operating loss in its third quarter on a 15% drop in sales from the second quarter. AMD and Intel also have been engaged in a bitter price war as Intel, the world’s largest chip maker, seeks to regain market share lost to AMD in the first half of the year.

Investors are expecting even more grim results from Intel and AMD’s principal customers, PC makers, as already slack demand from both consumers and corporations worsens. Analysts are expecting profit warnings from the likes of Compaq Computer Corp., the No. 2 PC maker, which recently agreed to be bought by competitor Hewlett-Packard Co.

Separately, Gateway Inc. said it would phase out in the next two months its Gateway Select line, the only one of Gateway’s that uses microprocessors--the brains of a PC--from AMD. A Gateway spokeswoman said the move was designed to cut costs in engineering and manufacturing and to simplify its product line.

“AMD’s road map is just not very competitive over the next 12 months,” said U.S. Bancorp Piper Jaffray analyst Ashok Kumar. AMD’s product lineup will improve, however, Kumar said, when the company introduces its next generation of Athlon processors toward the middle of next year.

Mosesmann said he thought it was just more bad news for AMD, which lost business to Intel when Micron Electronics, a small PC maker, decided to go with Intel and IBM Corp.

Although AMD held the crown for selling the fastest microprocessor earlier this year, Intel is now selling a chip that runs at 2 gigahertz. AMD has responded by citing tests that show AMD chips, running at a slower clock-speed, outperforming Intel’s Pentium 4 chip in some cases.

But that doesn’t appear to be enough.

“Consumers want megahertz, and if they can’t convince Gateway that it’s not as an important a factor, then how can they convince the rest of the world,” Mosesmann said.

Shares of AMD fell 76 cents, or 7.8%, to $9.05 on the New York Stock Exchange. The stock has fallen by a third so far this year, as has Intel’s.